Why Buy Silver?

Silver has no counter-party risk. It is not someone else’s liability. Silver Eagles or Canadian Silver Maple Leaf coins are recognized around the world and have intrinsic value everywhere. The same is NOT true for hundreds of paper currencies that have become worthless, usually because the government or central bank printed them to excess to pay the debts of governments that did not control spending.

The price of silver in US dollars since the year 2001 has been strongly correlated with the ever-increasing official national debt of the United States. Read $100 Silver! Yes, But When? I doubt that anyone believes the national debt will decrease or even remain constant over the next four years. We have every reason to believe that it will increase by well over $1,000,000,000,000 per year for many years. If the national debt is rapidly increasing and it correlates, on average, with the price of silver, then we can be reasonably certain that the HIGHLY VOLATILE price of silver will increase substantially over the next few years.

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Silver has been used as money (medium of exchange and a store of value) for over 3,000 years. In most cultures, silver has been used for daily transactions far more often than gold. I have read that the word for “money” is the same as the word for “silver” in many languages.

In the United States silver was used as money – coins – until the 1960s when inflation in the paper money supply caused the price of silver to rise sufficiently that silver coins were removed from circulation. Do you remember silver dollars? They contained approximately 0.77 ounces of silver. Currently the US Mint produces silver eagles which contain 1.0 ounce of silver – and cost approximately $35.

Argentina has devalued their currency several times and has dropped eight zeros off their unbacked paper money in the past 30 years. The United States has not dropped any zeros from dollars, but it took approximately one-half of one dollar to buy an ounce of silver 100 years ago, while it takes over 30 in today’s reduced value dollars. It took about 20 dollars to buy an ounce of gold 100 years ago and it takes over 1,600 dollars to buy that same ounce of gold today. There are many more dollars (paper and electronic) in circulation today compared to 100 years ago. Hence the prices, measured in declining value dollars, for silver, gold, wheat, crude oil, bread, coffee, and ammunition is MUCH larger.

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Throughout history the prices of gold and silver have increased and decreased together, usually with gold costing 10 to 20 times as much as silver. A historical ratio of 15 or 16 is often quoted and that places the current ratio, which is in excess of 50, as relatively high. Since Nixon “closed the gold window” on August 15, 1971 and allowed the dollar to become an unbacked paper currency that could be created in nearly unlimited quantities, the gold to silver ratio has ranged from a high of approximately 100 to a low of approximately 17. There is room for silver prices to explode higher, narrowing the ratio to perhaps 20 to 1. When gold reaches $3,500 (Jim Sinclair) and subsequently much higher in the next few years, and assuming the ratio drops to approximately 20 to 1, the price of silver could approach $200 per ounce, on its way to a much higher number, depending on the extent of the QE-Infinity “money printing,” panic, hyperinflation, and investor demand.

If you think a silver price of $200 per ounce is outrageous, I suspect you would find near universal agreement among most Americans. But is a national debt in excess of $16,000,000,000,000 less outrageous? If unfunded liabilities are included the “fiscal gap” is, depending on who is calculating it, approximately $100,000,000,000,000 to $220,000,000,000,000. For perspective, that places the unfunded liabilities of the US government at approximately $700,000 per person in the United States. Is $700,000 unfunded liability (debt) per man, woman, and child more believable than a price for silver of $200?

It seems likely that the populace will eventually realize that:

Government spending is out of control and will not be voluntarily reduced.

“Printing money” or debt monetization (QE) is necessary and inevitable in order to continue funding the excess spending of the US government. More money in circulation means a declining purchasing power for the dollar. The decline is likely to accelerate at some time in the future.

The real value of our savings and retirement diminishes as the dollar declines in value.

People will panic and shift into real assets to preserve their purchasing power. (There is no fever like gold fever!)

That panic will cause gold, silver, and many other real assets to drastically increase in price, as measured in devalued dollars.

It is better to be early than late if a panic-moment is about to arrive.

Silver is less expensive per ounce than gold and more available for purchase than gold, particularly for middle-class westerners. An investment into silver is likely to appreciate more than a similar investment in gold.

What Do You Believe?

Do you believe that excessive spending and debt will be reduced?

Do you believe that the decline in purchasing power of the dollar over the last 100 years will suddenly reverse?

Do you believe that congressional promises for Social Security, Medicare, Medicaid, and government pensions will be broken?

Do you believe the Federal Reserve will continue to print the money to pay for those promises?

Do you believe your savings and retirement are totally safe in paper investments denominated in dollars?

Do you believe, as history indicates, that paper money eventually devalues to zero while gold and silver retain their value?

Do you believe that the world will suddenly stop using silver, instead of finding new uses for it every year?

Would you rather trust silver coins in a safe place or paper money and political promises? Read Ten Steps to Safety.

Most people will do nothing to protect their financial future. Will you?

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14 thoughts on “Why Buy Silver?”

Thanks for an excellent article! I am a newcomer to investing in precious metals, but having done tons of research lately on the topics of our economy and the PM market, I can say that this article powerfully and lucidly points to the fact that now is the time buy PM. And the fact that prices are continuing to be hammered only makes this a rare buying opportunity!

My only regret is that I didn’t start learning about and buying silver YEARS ago. I will look forward to reading your blog! (in addition to Mike Maloney’s website Gold&Silver — I think I’m his #1 fan!)

What a great article Thankyou,for me the reason I buy AG is more of a long term storage of wealth, Like being your own central bank so to speak LOL its not a get rich quick scheme at all, more a long term strategy, if not for me then my grandkids. tc and keep stacking

Terrific article – I operate a trading platform that allows hard-money investors to engage their silver/gold and ‘tap’ its purchasing power with metal-hungry merchants, in a secure and convenient online platform. Its called The Sovereign Exchange. Physical investors can Put their Pedal to the Metal; Merchants can Settle for Metal! We issue a private tender called a Sovereign that is used to record and reconcile trading activity among exchange members – each member self-directs their account online. A Sovereign is a digital gram of Silver. It is 100% secured by vaulted bullion – at any point any member with Sovereigns can ‘claim’ the equvalent ounces from our Treasury. More here: http://www.sovereignize.net

I bought silver 2 years ago and IT SUCKS!! It is TOTALLY stagnant, and all those solid fundamentals you mentioned (why I bought in the 1st place) don’t amount to a hill of beans. WHY do guys like you keep talking about “silver outperforms gold” BULLSHIT!!! I bought 1 Krugerrand @ 1500 and it’s currently worth almost 1700. THE SAME DAY I bought $10,000 worth of junk silver which today is worth about &7500.00

1) Price of silver bullion is not the same as junk silver. The premium on junk silver may be higher or lower depending on the demand at the time. If the public is enamored with silver, the premium will be higher. You may have purchased at a relatively high premium.

2) Price for bullion in Feb 2009 was about $13.00. In Feb 2011 silver was about $29.00, and now it is approaching $32.00.

3) If you had purchased bullion in Feb 2009 you would probably be happy with over 140% return.

4) If you purchased bullion in Feb 2011 (when you bought junk silver) the return would have been a few percent over the past two years. Still positive but not great. Your experience with junk silver may be different depending on the premium and commission you paid.

5) Timing is IMPORTANT!

6) In my opinion silver today is similar to say March or April 2010 at about $16 – $19. ONE YEAR LATER silver peaked just under $50.00

7) Silver has great potential to rally much higher during 2013. It may not, but it is, in my opinion, a low risk and high reward bet.